Bernanke Money-Grubs From the .01%

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009), which was published in Chinese in 2014. He is working on a book about Ben Bernanke.   See more at: http://www.aucontrarian.com

"[Bernanke] gave this stuff out [inside information -FJS], but I didn't realize what he was saying at the time, so I didn't do a great trade."

Hedge-fund manager David Tepper, after paying $200,000 to take former Federal Reserve Chairman Ben S. Bernanke to dinner, quoted in the New York Times, May 21, 2014

            Ben S. Bernanke continues to be a man of his times. His mind never looks backward or forward. It is as if every day is complete within itself, with no attachment to precedent; no past, no record, no history, and, in the future, he will bear no responsibility. Some precedent may be helpful to critique former Federal Reserve Chairman Ben S. Bernanke's current escapade.

After Paul Volcker stepped down from the chairmanship in 1987, he made one, solitary public comment that could in any way be deemed a comment on the Federal Reserve. (It was a defense of the new Fed chairman, Alan Greenspan, who had raised interest rates shortly before the 1987 stock-market crash.) Volcker held his tongue for 12 years, until 1999. Then, and only then, he simply could not remain silent while Greenspan sweet-talked Americans into buying NASDAQ shares at 200 times earnings. On May 14, 1999, the former Federal Reserve chairman spoke at the Kogod School of Business commencement at American University: "The fate of the world is dependent on the stock market, whose growth is dependent on about 50 stocks, half of which have never reported any earnings."

Volcker's observation was obvious at the time but, as usual, the Inner Sanctum never let the public in on the fix.

After Alan Greenspan resigned in 2006, he behaved just as we expected. From Panderer to Power:

"On February 12, 2006, two weeks after Chairman Greenspan retired, he received $250,000 to speak at a dinner Lehman Brothers' hosted for hedge-fund managers. The New York Post reported Lehman paid $100,000 more than Greenspan's 'customary speaking fee' of $150,000. It was a surprise to many he spoke at all. Caroline Baum commented on Bloomberg: "At a minimum, Greenspan evinced bad judgment by not letting time pass before reasserting himself. His refusal to cede the limelight gracefully...left a bad taste in people's mouths." That he spoke publicly, and for money, was undignified. This reflected solely on Greenspan. Worse, he was interfering with the Bernanke Fed. He told the hedge-fund managers that short-term interest rates would have to rise. The next day, they did....

"[C]entral bankers took their gloves off. Mervyn King, Governor of the Bank of England (and former colleague of Ben Bernanke at MIT) announced: 'I'll only say that I am very grateful to Eddie George [King's predecessor] that he has not been in the newspapers and on radio all the time commenting on what the monetary policy committee is doing. In due course I will ensure I do exactly the same thing.'"

It will be interesting if Mervyn King reprimands his former cellmate from M.I.T. He may. King has been one of the few central bankers who admits central banks played a part in the "the worst financial crisis in global history, including the Great Depression" [B. Bernanke to the FCIC in 2009. This declaration reminded the Committee "back off, I saved the word" - FJS]

The media has decided Bernanke is "in play." This is a matter of personal perception, ratcheted by a New York Times story on Thursday, May 20, 2014. The title is telling: "After the Fed, Bernanke Offers His Wisdom for a Big Fee."

The title itself is a message. "Open season" on Bernanke is now permitted. Elizabeth Warren explained this distinction in her recent book, A Fighting Chance. Warren is now a senator from Massachusetts. At the time of the incident she recalls, Warren was poking holes in the Old Boys impregnable frat house. Larry Summers decided to sit her down. Warren writes in A Fighting Chance: "He teed it up this way: I had a choice.... I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don't listen to them. Insiders, however, get lots of access and a chance to push their ideas. People -- powerful people -- listen to what they have to say. But insiders also understand one unbreakable rule: They don't criticize other insiders."

            Permitting the possibility a Times editor was asleep at the wheel, Bernanke has lost protection. He would be the second insider cut loose in the past two weeks. On Monday, May 12, 2014, James Freeman teed up Timmy Geithner's new book, Stress Test in the Wall Street Journal. Freeman is the deputy editor of the Journal's editorial page. In the world Summers described, the Journal would hire an outsider to toss Geithner onto the ash heap of history.

            The New York Times and the Wall Street Journal will always protect their own interests, first.  The Times, for instance, was an early advocate for U.S. military operations in Vietnam. That changed.

            The Times lashing lacks historical perspective. It states: "Mr. Bernanke is following a well-trodden path that his predecessor, Alan Greenspan, and other Washington policymakers have taken." This is recent, though. Certainly, getting paid $200,000 to $400,000 for dinner, night after night, is new.

            Particularly revolting is Bernanke selling himself (being a family publication, a more accurate verb lies dormant) to the .01%. For appearance sake alone, such blatant money-grubbing offers grist to those who see the Federal Reserve as hostage to banking interests. Similarly, claims of "Federal Reserve independence" and other antiseptic nonsense will lose credence to a jaundiced eye.

A perceptive Congressman who sits on the Financial Services Committee may wish Bernanke was still in the penalty box. For instance, Jim Bunning long retired now, could be his party's pick, after, of course, finance and the economy come unplugged. (Any day now. You heard it here first, and second, and third...)

On December 9, 2009, Bunning let loose on the prof: "How can you regulate systemic risk when you are the systemic risk?" This is funny, but also every word is true, including "you" - not, the "Fed," the "FOMC," the "literature" - and "the" - not, his model or his (non)-theory.

            Should some Congressman decide to subpoena the Richard Whitney of 2014, this is the time to gather C-Span clips for a presidential run in 2016. The following background may help. It addresses Bernanke's complete lack of understanding - despite his responsibility - for money-printing without license.

"Using high leverage to improve corporate performance is much like encouraging safe driving by putting a dagger, pointed at the driver's chest, in every car's steering wheel; it may improve driving but may lead to disaster during a snowstorm."

            Ben S. Bernanke, 1990

Bloomberg headline: "Bernanke, Kohn Pledge Fed to Withdraw Credit When Crisis Ends"

April 9, 2009

From the April 9, 2009, Bloomberg story: "Bernanke's speech yesterday detailed steps that the Fed can take to remove that liquidity, including soaking up cash by the issuance of special bills." 

Special bills?!?

60 Minutes, March 2009:

60 Minutes voiceover: "That makes it all the more outrageous when he hears of financial firms handing out perks and bonuses after they've taken bailout money."

Bernanke: "The era of the high living, this is over now. And that they need to be responsible and use the money constructively.... [Bankers need to] have a reasonable sense of humility based on what's happened in the past 18 months." 

60 Minutes, December 5, 2010: 

60 MINUTES: "You have what degree of confidence in your ability to control this?"  

BERNANKE: "One hundred percent."
MarketWatch headline: SHE FOUGHT WALL STREET, AND NOW SHE'S OFF TO JAIL: OPINION: UNLIKE CEO'S, THIS 'OCCUPY' PROTESTOR COULDN"T AVOID PROSECUTION. by David Weidner: "Cecily McMillan was sentenced yesterday to 90 days in prison for assaulting a police officer who was trying to clear Zuccotti Park in lower Manhattan, where Occupy Wall Street protesters had gathered. McMillan, 25, denied the second-degree assault charge."

            May 20, 2014

To add a populist tone, which Ben Bernanke is so generously encouraging: Nor could Cecily McMillan afford to have dinner with the central banker, which, in any case is most useful to hedge-fund managers such as David Tepper, who paid himself over $3 billion in 2013.

"With all due respect, US policy is clueless. It's not that the Americans haven't pumped enough liquidity into the market. Now to say let's pump more into the market is not going to solve their problems." 

Wolfgang Schäuble, German finance minister, Financial Times, November 5, 2010

"We are learning by doing." (Or, something similar)

            Ben S. Bernanke, lecture at George Washington University, March 2012

Testimony before Senate Banking Committee, February 2013

SENATOR TOOMEY: "What would the impact be of actually having to liquidate a big portion of your holdings on the bond market, on the equity markets?

CHAIRMAN BERNANKE: "We don't anticipate having to do that."

SENATOR TOOMEY: "Not ever?!"

[Bernanke went on to confirm "not ever." - FJS]

"First, innovation, almost by definition, involves ideas that no one has yet had, which means that forecasts of future technological change can be, and often are, wildly wrong."

Ben S. Bernanke, May 18, 2013:

"[N]ot only are scientific and technical innovation themselves inherently hard to predict, so are the long-run practical consequences of innovation for our economy and our daily lives."

Ben S. Bernanke, May 18, 2013

"THE FED HAS NO ENDGAME," MSM headline, November 4, 2013

"A brief update on the bloated condition of the Federal Reserve's balance sheet. At present, the Fed holds $3.84 trillion in assets, with capital of just $54.86 billion, putting the Fed at 70-to-1 leverage against its stated capital. Given the relatively long maturity of Fed asset holdings, even a 20 basis point increase in interest rates effectively wipes out the Fed's capital. With the present 10-year Treasury yield already above the weighted average yield at which the Fed established its holdings, this is not a negligible consideration."

            John Hussman, November 5, 2013

"Larry Summers is worried that the Federal Reserves' efforts to stimulate the economy could end up doing damage. 'Low interest rates could become a source of instability down the road,' said Summers....What's more, Summers said that the Fed's policies are likely making the income inequality problem in the U.S. worse, by helping wealthy Americans who hold the majority of stocks, more than the rest of the country. 'A policy that works by pumping up asset prices is not going to be egalitarian,' said Summers."

            Fortune, May 15, 2014.

Not in the short-term, Larry.

LIFE GOES ON OUTSIDE THE ECCLES BUILDING:

"Pininterst, Uber - $10 billion is the new $1 billion."

            May 20, 2014

"Anton Purisima has filed a lawsuit in a Manhattan court for two undecillion dollars. 'The sum, written as two followed by thirty-six zeros, is likely a new record for a demand in a lawsuit, the New York Post says.' It's also more money than even exists in the world by a long shot, Gothamist notes."

            May 20, 2014

Not for long, Gothamist.

"60 Minutes" March 2009

"If you had a message for the American people in this interview what would that be?"

Bernanke: "...I'd say first of all the Federal Reserve is here and is going to do everything possible to support the economy."

                        March 2009

Hi ho, silver. 

Silent Minority or Majority?

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (Aucontrarian.com, 2009)

            Understanding what the people think (popular opinion) is a difficult task. It is not the same as what the experts and media tell us to think (public opinion), but the two have much in common. The correct judgment of if, or when, popular opinion will say "enough" to public opinion's mistreatment of the people could produce a multi-trillion dollar payoff.

            Without personally having a clue if or when that time is approaching, it is as a public service that an undercurrent of American opinion is hereby forwarded.  

Federal Reserve Chairman Janet Yellen will gush with the media on March 19, 2014. MarketWatch asked its audience just what the Federal Reserve chairman should be asked:   

From MarketWatch - What's your question for Janet Yellen? March 18, 2014

 

Most recent responses at 2 PM, March 18, 2014:

ron swaim 33 minutes ago: "Why she been incompetent her entire life which matches every single person in his administration, i.e., Kerry, Clinton, holder, etc.?!?!?!?!?"

Sammy Edwards 1 hour ago: "Why don't you dye your hair?"

Lori Smith 1 hour ago: "On that I would say give her a break. At least she is trying to grow old gracefully. Look at Hitlary that hairs dyed and it still doesn't stop the ugly anyway."

PHILLIP LARREA 1 hour ago: "If 2.5% variance is defined as price stability, why does this variance only apply to inflation, and not deflation?"

Jay Lazo 2 hours ago: "When will it all end ?"

  

Rodney Olives 2 hours ago: "Hey Janet,  Sooooooo....what are you doing after the press conference? Wanna grab a latte?"

John Warren 2 hours ago: "why do old people feel a need to continue hanging on as though they are important?  oh yes, gives mw something to print about, i forgot"

Jay Lazo 2 hours ago: "Any relation to Moe Howard ?"

MISSINGMW 2 hours ago: "I would like to know when you are willing to let savers participate in the game? The economy has lost a lot of buying power in the last 5 years. Not everyone wants to take risk, some that are retired are looking for preservation of capital. If we do jump off the deep end will be considered as too big to fail and be made whole again just like the banks?"

             From the above (only one of the latest 10 questions was deleted, due to length) one might think the public is less pleased with the Federal Reserve than the media establishment would like us to believe. But, one must then ask why the hostility was similar in questions posed before Federal Reserve Chairman Ben S. Bernanke held a press conference in December 2012:

What's your question for Ben Bernanke? WASHINGTON (MarketWatch) December 12, 2012 - "Bernanke Claus is coming to town, and the bearded central banker from his helicopter sleigh is about to drop more cash on the U.S. economy specifically because it's been more naughty than nice....MarketWatch invites you to ask your question, in the Story Conversation below. MarketWatch may take or amend your question when it's our turn to query Bernanke":

Robert Drobot  When will the FED permit an independent source to perform a complete and comprehensive audit of FED books? Why don't you support an end to FED control of America's financial matters?

Nick Henderson  What I would ask is how Mr. Bernanke and his associates draw a moral distinction between what they do and what a criminal counterfeiter does?

jim davis  Bernanke, why do you continue to steal from prudent savers, retirees and widows by devaluing the dollar year after year?

Shambrook Whoppers Are you a traitor or you just hate America ?

Ms. Judy Rosner  When are you going to retire?

             These were the five most recent questions posed to Bernanke at the time. Maybe others were more congenial, but the fact is, in both the December 2012 and March 2013 samples, every question copied was hostile, except (possibly) the hair-do inquiries. (As for the latte invitation, my advice for her chairmanship is to decline.) We could spend hours attempting to attribute the difference between public opinion and the menacing fragrance wafting from the inquisitive bunch quoted above. To add one speculative comment: the type of person who responds to such a question on a website may betray a sinister disposition. Or, maybe not. 

 

Another Go

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (Aucontrarian.com, 2009)

Advocates for Federal Reserve disclosure harp on the five-year wait for FOMC transcripts. The reasoning goes that institutions in a democracy should be more democratic: let the people know what the Fed plots behind closed doors. The question arises: to what end?

            The 2008 transcripts were released in late-February. Most media operations published stories about the Fed's absent-minded professors who missed the importance of failing financial institutions during 2008. This was not news. That has been described over the past five years, among other places, in Panderer to Power. The release, however, was an opportunity to remind investors, retirees, florists, and students receiving government financing of their precarious state.

Now, the story of the 2008 transcripts has died, without much in the way of help to the bewildered. Granted, bewilderment is the general state of affairs today, whether at the FOMC, among the media, the people, and those who cannot understand how such as state-of-affairs continues. Nevertheless, the opportunity exists to elevate comprehension. This was the goal in"Those FOMC Transcripts: Watch Out Below," (February 26, 2014). The effort continues, here, to describe how the whirlwind of noise escaping the Eccles Building reflected through the self-serving interpretations of the Wall Street experts is so perilous. 

 

  From the March 3, 2014, King Report: "Due to quivering Fed officials' incessant assertions that the Fed would halt or even reverse QE tapering if economic conditions warrant, an increasing universe of investors and traders see little or no downside equity risk."

There we have the reason various U.S. stock indices alternately hit all-time highs. We should not need The Charge of the Light Brigade to worry investors. The February 21, 2014, issue of Grant's Interest Rate Observer includes a front-page reminder that pre-tax profits of U.S. corporations as a percentage of G.D.P. are the highest since records began in 1946; after 382 of the S&P 500 reported fourth quarter results, average year-on-year gain on profit has been 10.7%; of the same cohort, revenue growth has been 0.7%. Presumably, these are not adjusted for price inflation which is currently raging in the United States, all claims to the contrary deserving ridicule.

At the September 16, 2008, FOMC meeting, Chairman Ben S. Bernanke was not blind to financial woes. He declared: "Conditions clearly have worsened recently, despite the rescue of the GSEs, the latest stressor being the bankruptcy of Lehman Brothers and other factors such as AIG." He did not stop there, acknowledging "[a]lmost all financial institutions are facing significant stress, particularly difficulties in raising capital, and credit quality is problematic, particularly in residential areas."

Nevertheless, Bernanke was not troubled. He concluded this discourse by opining: "We may have to wait for some time to get clarity of the last week or so." As discussed in my first go at the 2008 transcripts, the FOMC voted to sit still, voting unanimously to keep the fed funds rate at 2.0%. The reason for such repose is the central-banking fable that finance can be ignored; its Dynamic Stochastic General Equilibrium model will produce a monetary solution to address a dyspeptic stock market or a dollar meltdown.

In the same discussion as quoted above, Chairman Ben said: "We have been debating around this table for quite awhile what the right indicator of monetary policy is." He mentioned some proposed numbers, but, in any case: "I think the only answer is that the right measure is contingent on a model." And: "[Y]ou have to have a model."

(On a different topic, unrelated to the main discussion here, Simple Ben declared: "The ideal way to deal with moral hazard is a well-developed structure that gives clear indications.... We have found ourselves in this episode in a situation in which events are happening quickly, and we don't have those things in place." He had been Fed chairman for almost three years yet mentions the Fed's negligence in not addressing Too-Big-to-Fail banks as if he forgot to order corn-on-the-cob for the Fed's clambake.)  

This slapdash approach has not changed, is obviously unattached to the real world, and will leave Chairman Yellen helpless the next time markets and financial institutions melt. The otherworldliness of it all is captured in this discussion itself. The world's financial backstop (our man Ben) goes on for several pages at a time when Goldman Sachs and Morgan Stanley could not get funding from a counterparty. This is quite different than at the FOMC meeting on September 29, 1998, after Long-Term Capital Management went belly up. Then-Chairman Alan Greenspan took on a different personality from previous FOMC meetings. He demanded answers to questions about collateral and leverage that made him wonder if modern-day bankers knew what they were doing. (He recovered from this revelatory meeting as soon as LTCM faded, in a sycophantic stunt before the derivatives lobby that pays him so extravagantly today. See pages 189-190 of Panderer to Power. )

Of course, one wants to know: are we up a creek with Chairman Janet Yellen in command? Let us compare and contrast two speeches delivered on February 27, 2014. (I thank Doug Noland, at the Prudent Bear Fund for his transcription of Dr. Issing's comments in Bundesbankification .) 

Otmar Issing, former chief economist of the Bundsebank and ECB, spoke at the Bundesbank Symposium on Financial Stability, in Frankfurt, on February 27. Unlike Bernanke and Yellen, Issing thinks financial bubbles have consequences: "[P]rice stability is not enough. And I think this has dramatic consequences for the conduct of monetary policy. For me, the implication is very clear: policy which relies on a forecast (model) based on a real economy only without a financial sector - without taking into account money and Credit in a sensible way - is not anymore state of the art." Was it ever? Possibly when 59% of American profits came from manufacturing and 9% from finance. That was in 1950.

Issing never made headway during the mortgage madness: "I'm reminded of many, many meetings here or especially in the U.S. with my friends from the Fed. Their reaction was absolutely clear: when I referred to a potential bubble in real estate, what I heard always was 'never in the last 50 years have real estate prices fallen on a nationwide aspect.' For me, this was not a comfort."

He did not stand a chance of making headway with Bernanke and Yellen in 2006 and 2007: "[T]heir reaction to my critique or argument was very relaxed: 'In the meantime, we have had much higher GDP, higher employment, more houses, etc. So compared to the cost of raising interest rates would be much too high - much too high.' I have never seen so far the comparison of the high cost of the mess we are in if we take this 'risk management' approach."

Issing addressed the hostile stupidity of the academics in charge: "I learn that we're allowed to talk of Bubbles now, which was out of the question for a long time in research - "the buildup of Bubbles goes very slowly - softly - but the collapse goes very fast. So it's obvious that that the [central] bank should react in a decisive way one prices collapse." I think Issing may not have ventured to the U.S. lately. The "bubbles do not exist" lobby is pressing its point once again, and, once again, it is from the universities.

Back in Washington, on the same day, Federal Reserve Chairman Janet Yellen talked to the Senators. She is lost in space. A few statements that will not receive interpretation:

"Fiscal policy really has been quite tight and has imposed a substantial drag on spending in the U.S. economy over the last several years..."

"I'm slightly surprised that he [Fed Board Governor Daniel Tarullo] said we are 'nowhere close' [on resolving Too-Big-To-Fail] because I personally think we've made quite a lot of progress in putting in place regulations that will make a huge differences [sic] to this...."

"I agree that an environment of low rates ... and we have had a long period of low interest rates ... can give rise to behavior that poses threats to financial stability and therefore we need to be looking at that very carefully and we are doing so in a very thorough way, I believe."

"Since the financial crisis and the depths of the recession, substantial progress has been made in restoring the economy to health and in strengthening the financial system."

Closing on a higher plane:

Shirley Temple died recently. There have been many accolades but I don't know if the tributes have discussed her admirable character. She serves as a model for children and adults alike.

Her talent was described by Will Friedwald in the Wall Street Journal: "The most obvious thing to remember Shirley Temple for - a point so overwhelming that it barely needs to be stated - is that she was the greatest child star in the history of not just the movies but all of popular culture. No other youngster so dominated the box office and no other individual, other than Franklin D. Roosevelt himself, did more to deliver both Republicans and Democrats alike from the Great Depression. But what isn't said often enough about Shirley Temple Black is that when you compare her to the many dancing ladies in the movies who couldn't really sing (Ginger Rogers, Rita Hayworth, Cyd Charisse) and those terrific singers in films who danced merely passably (Judy Garland, Doris Day), Temple emerges as the major female triple-threat of her era and since. She was a singer of uncommon ability, capable of putting a song over with the best of them in an age when the competition was Al Jolson and Bing Crosby; a dancer worthy of comparison with Fred Astaire, Gene Kelly and even her longtime costar, the great African-American tap dancer Bill "Bojangles" Robinson; and an actress who could break your heart just by looking at you."

She was born with talent; it was her unalloyed resolution that made her an exceptional person. Each morning when she showed up on the set, she knew her lines, her steps, and her songs. This five, six, and seven-year-old girl was angry, joyful, or remorseful when the shooting started. The studio did not require second takes on Shirley Temple's account. It was said her mother pushed her into show business, but such strength is a habit that comes from within. She could have demanded the concessions movie stars are noted for exacting. She never did. Her talent could never have achieved the praise bestowed by Will Friedwald without habits "rooted deep in the whole personality. They have to be cultivated like any other habit, over a long period of time, by experience." (Flannery O'Connor) Few can match her industry, but, as was said above, she is a model of character.

            The actress Louise Brooks wrote: "Anyone who has achieved excellence knows it comes as a result of ceaseless concentration."

Hall of Fame

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (Aucontrarian.com, 2009)

Refreshing was the questioning of Federal Reserve Chairman Ben S. Bernanke by Congressman Scott Garrett from New Jersey in "Shooting Stars." We can hope his influence may spread.

Not to be forgotten are retired legislators, who did their best. Following is the lashing from Senator Jim Bunning to Chairman Ben S. Bernanke at his re-fossilization hearing on December 3, 2009, for a second term as Fed chairman.

Right off the bat it was a pleasure not to hear Bunning thank the Chairman for saving the world during the financial crisis of 2008. Most of the other senators groveled. ("I believe you are the right leader for this moment in the nation's economic history and I believe your reappointment sends the right signal to markets," - Senator Christopher Dodd, chairman of the Senate Banking Committee, said during his opening statement. - CNNMoney]

But, Senator Bunning developed the habit of going straight for the Adam's apple at a young age. Elected to Baseball's Hall of Fame, the right-handed pitcher won 224 games and hit more batters than all but 10 pitchers in the history of baseball.

Extraordinary is not so much what he says, which is true, but that, four years later, there is such a wall of silence, a stillness, that will not speak of the malignant agglomerations swollen to proportions unimaginable since 2009.

Fear of the end, one might agree, is why trivia substitutes for the truth.

Prepared remarks from Senator Jim Bunning(R-KY)  

Four years ago when you came before the Senate for confirmation to be Chairman of the Federal Reserve, I was the only Senator to vote against you.  In fact, I was the only Senator to even raise serious concerns about you.  I opposed you because I knew you would continue the legacy of Alan Greenspan, and I was right.  But I did not know how right I would be and could not begin to imagine how wrong you would be in the following four years.

The Greenspan legacy on monetary policy was breaking from the Taylor Rule to provide easy money, and thus inflate bubbles. Not only did you continue that policy when you took control of the Fed, but you supported every Greenspan rate decision when you were on the Fed earlier this decade. Sometimes you even wanted to go further and provide even more easy money than Chairman Greenspan. [FOMC transcripts show Bernanke egged Greenspan into cutting rates and Bernanke provided the academic [sic] apparatus for doing so - FJS]  As recently as a letter you sent me two weeks ago, you still refuse to admit Fed actions played any role in inflating the housing bubble despite overwhelming evidence and the consensus of economists to the contrary. [This has not changed in 2013. - FJS] And in your efforts to keep filling the punch bowl, you cranked up the printing press to buy mortgage securities, Treasury securities, commercial paper, and other assets from Wall Street. Those purchases, by the way, led to some nice profits for the Wall Street banks and dealers who sold them to you, and the G.S.E. purchases seem to be illegal since the Federal Reserve Act only allows the purchase of securities backed by the government.

On consumer protection, the Greenspan policy was "don't do it." You went along with his policy before you were Chairman, and continued it after you were promoted. The most glaring example is it took you two years to finally regulate subprime mortgages after Chairman Greenspan did nothing for 12 years. Even then, you only acted after pressure from Congress and after it was clear subprime mortgages were at the heart of the economic meltdown. On other consumer protection issues you only acted as the time approached for your re-nomination to be Fed Chairman.

Alan Greenspan refused to look for bubbles or try to do anything other than create them. Likewise, it is clear from your statements over the last four years that you failed to spot the housing bubble despite many warnings. [Today, in 2013, Bernanke brags that he is lifting house prices to artificial levels. - FJS]

Chairman Greenspan's attitude toward regulating banks was much like his attitude toward consumer protection. Instead of close supervision of the biggest and most dangerous banks, he ignored the growing balance sheets and increasing risk. You did no better. In fact, under your watch every one of the major banks failed or would have failed if you did not bail them out.

On derivatives, Chairman Greenspan and other Clinton Administration officials attacked Brooksley Born when she dared to raise concerns about the growing risks. They succeeded in changing the law to prevent her or anyone else from effectively regulating derivatives. After taking over the Fed, you did not see any need for more substantial regulation of derivatives until it was clear that we were headed to a financial meltdown thanks in part to those products.

The Greenspan policy on transparency was talk a lot, use plenty of numbers, but say nothing. Things were so bad one TV network even tried to guess his thoughts by looking at the briefcase he carried to work. You promised Congress more transparency when you came to the job, and you promised us more transparency when you came begging for TARP. To be fair, you have published some more information than before, but those efforts are inadequate and you still refuse to provide details on the Fed's bailouts last year and on all the toxic waste you have bought.

And Chairman Greenspan sold the Fed's independence to Wall Street through the so-called "Greenspan Put". Whenever Wall Street needed a boost, Alan was there. But you went far beyond that when you bowed to the political pressures of the Bush and Obama administrations and turned the Fed into an arm of the Treasury. Under your watch, the Bernanke Put became a bailout for all large financial institutions, including many foreign banks. And you put the printing presses into overdrive to fund the government's spending and hand out cheap money to your masters on Wall Street, which they use to rake in record profits while ordinary Americans and small businesses can't even get loans for their everyday needs.

Now, I want to read you a quote, Mr. Green-, Mr. Bernanke [laughter, including a smug, patronizing, chortle from Mr. Green-anke - FJS]. That was a Freudian slip, believe me. :"I believe that the tools available to the banking agencies, including the ability to require adequate capital and an effective bank receivership process are sufficient to allow the agencies to minimize the systemic risks associated with large banks.  Moreover, the agencies have made clear that no bank is too-big-too-fail, so that bank management, shareholders, and un-insured debt holders understand that they will not escape the consequences of excessive risk-taking.  In short, although vigilance is necessary, I believe the systemic risk inherent in the banking system is well-managed and well-controlled."

That should sound familiar, since it was part of your response to a question I asked about the systemic risk of large financial institutions at your last confirmation hearing.  I'm going to ask that the full question and answer be included in today's hearing record.

Now, if that statement was true and you had acted according to it, I might be supporting your nomination today. But since then, you have decided that just about every large bank, investment bank, insurance company, and even some industrial companies are too big to fail. Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.    

Instead of taking that money and lending to consumers and cleaning up their balance sheets, the banks started to pocket record profits and pay out billions of dollars in bonuses. Because you bowed to pressure from the banks and refused to resolve them or force them to clean up their balance sheets and clean out the management, you have created zombie banks that are only enriching their traders and executives. You are repeating the mistakes of Japan in the 1990s on a much larger scale, while sowing the seeds for the next bubble. In the same letter where you refused to admit any responsibility for inflating the housing bubble, you also admitted that you do not have an exit strategy for all the money you have printed and securities you have bought. [This has not changed. Simple Ben, testifying, July 17, 2013: "If we were to tighten (monetary) policy, the economy would tank." - FJS] That sounds to me like you intend to keep propping up the banks for as long as they want.

Even if all that were not true, the A.I.G. bailout alone is reason enough to send you back to Princeton. First you told us A.I.G. and its creditors had to be bailed out because they posed a systemic risk, largely because of the credit default swaps portfolio. Those credit default swaps, by the way, are over the counter derivatives that the Fed did not want regulated. Well, according to the TARP Inspector General, it turns out the Fed was not concerned about the financial condition of the credit default swaps partners when you decided to pay them off at par. In fact, the Inspector General makes it clear that no serious efforts were made to get the partners to take haircuts, and one bank's offer to take a haircut, and you declined it. I can only think of two possible reasons you would not make then-New York Fed President Geithner try to save the taxpayers some money by seriously negotiating or at least take up U.B.S. on their offer of a haircut. Sadly, those two reasons are incompetence or a desire to secretly funnel more money to a few select firms, most notably Goldman Sachs [Goldman Sachs Chairman Lloyd Blankfein testified he was never asked to take a haircut - FJS], Merrill Lynch, and a handful of large European banks. I also cannot understand why you did not seek European government contributions to this bailout of their banking system.

From monetary policy to regulation, consumer protection, transparency, and independence, your time as Fed Chairman has been a failure. You stated time and again during the housing bubble that there was no bubble. After the bubble burst, you repeatedly claimed the fallout would be small. And you clearly did not spot the systemic risks that you claim the Fed was supposed to be looking out for.

Where I come from we punish failure, not reward it. That is certainly the way it was when I played baseball, and the way it is all across America, presently.  Judging by the current Treasury Secretary, some may think Washington does reward failure, but that should not be the case.  I will do everything I can to stop your nomination and drag out the process as long as possible.  We must put an end to your and the Fed's failures, and there is no better time than now. Your Fed has become the Creature from Jekyll Island.

[End]

Part of Bernanke's response: "Let me just correct one point.... We absolutely believed that AIG's failure would be an enormous systemic risk and would have imposed enormous damage, not just on the financial system, and this is the key point, on the entire U.S. economy and on every American."

If this was true - on the September 2008 day when Bernanke & Co. nationalized AIG - then, no one present understood the difference between a holding company and an operating company. See "The Professor Who Did NOT Save the World", and "David Boies v. Citizen Ben S. Bernanke". If Chairman Bernanke really was that detached from how businesses operate in September 2008, he apparently had no one around who told him the difference by December 2009.

Alternatively, the Fed chairman operates on the Big Lie Theorem, which, if so, is working like a charm and he's not a dumb as he sounds. 

Shooting Stars

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (Aucontrarian.com, 2009)

Following is a question-and-answer session between Congressman Scott Garrett from New Jersey and Federal Reserve Chairman Ben S. Bernanke before the House Committee on Financial Services, February 27, 2013.

It is puzzling why the Federal Reserve chairman is consistently unprepared to answer questions that fall directly inside the brief he has created for himself. It might be there is no need to understand questions such as those asked by Congressman Garrett, since nobody in the media seems to see through the fraud, either. In any case, this shows again Simple Ben has no idea what he is doing.

The reason for relaying this Q&A is not to explore the measureless depths of Bernanke's ignorance. Instead, the attraction is the final paragraph in which Congressman Garrett speaks. He has an exquisite grasp of how Federal Reserve policy has ruined markets. But, his time was up.

The Chair now recognizes the gentleman from New Jersey, Mr. Garrett, for 5 minutes.

Mr. GARRETT I thank the chairman and I thank Chairman Bernanke. Let me just try to run through in minutes three areas, what you talked about on remittances, what you talked about as far as some of the positive results, and if we have time, some of the effects of the somewhat current loose monetary policy on an international state. So, on remittances, I think you already said that the remittances are here, but they are potentially to go down in the future. If you look at the consolidated balance sheet of the Federal Reserve, we have capital of less than $55 billion, and assets of more than $3 trillion, so that means that all you need is about a 1 quarter of 1 percent increase in the interest rates, and you basically wipe out what you basically have right now, which is a 55 to 1 ratio, and you wipe that out. [Since that date, higher rates have wiped out the Federal Reserve's capital six times over. - FJS] So what is your prediction actually on that going forward with regard to interest rates wiping that ratio out and the effect on remittances to Congress? Can you be more specific on the numbers?

Mr. BERNANKE Certainly. So currently, as I have said, we have in the last 4 years, remitted $290 billion; we currently have more than $200 billion of unrealized capital gains on our balance sheet.  The capital issue is irrelevant. We have additional funding behind the capital. [That is, "we can print more dollars." He has. - FJS] We have $3 trillion of liabilities which are not callable liabilities, like cash, for example.

Mr. GARRETT. I guess I would just ask you if you could follow up on detail on that, because that is not the way I understand it, but I would ask you to put that in writing.

Mr. BERNANKE The main reality here is that if interest rates rise very quickly, then there may be a period where we don't pay any remittances at all to the Treasury. That is the actual outcome. That is important. Under most, and I would say virtually all scenarios, we will be sending remittances to the Treasury substantially higher than the norms established before the crisis.

Mr. GARRETT Since my time is limited, what we are looking at here is around $90 billion in remittances if-you said we could actually see that almost go down to eliminate it. Right now, we are trying to do a sequester at $85 billion. So it sort of puts us in perspective as to what the effect could be as far as your policies there. With regard to the positive indications that you have indicated, you said the stock market and the housing market have gone up because of your monetary policy, but previously you said that the Fed's monetary policy actions earlier this decade, in 2003-2005, did not contribute to the housing bubble in the United States. So which is it? Is monetary policy by the Fed not a cause of inflationary prices of housing, as you have said in the past, or is it a cause of inflating prices of housing? Can you have it both ways?

Mr. BERNANKE. Yes.

Mr. GARRETT. You can?

Mr. BERNANKE. Yeah, we can have it both ways, because they are different phenomena. The mortgage rate, um, uh, is a quantitative thing, so, house prices are going up a reasonable amount, given the strengthening of the housing market, given the strengthening of the economy, given where mortgage rates are. But the amount of movement in mortgage rates, mortgage rates in the early part of this, last decade were around 6 percent. That can't explain why house prices rose as much as they did. Maybe it was a small contribution, but it certainly can't explain the big run-up and then decline.

Mr. GARRETT. But, so now it is. [This was Garrett's dismissal of a man who had no idea what he was saying. - FJS]

So the other area you indicated why we should say your policies are working in a cost-benefit analysis is the stock market. I am sure you are familiar with Milton Friedman's work that says that people only really consume off of their permanent income, which basically means that you don't consume increased consumption because your stocks have gone up in the marketplace. And to that point, I know Mrs. Capito [Congresswoman Shelley Moore Capito, West Virginia, see below for Q&A - FJS] asked the question as to what seniors should do in this situation, and you said, take it out of some fixed assets and put it into the stock market. Heaven forbid that my 90-year-old mother would take her money out of fixed markets and put it in the stock market. I think that is probably the worst advice that is out there. And when you consider that a 1 percent increase in the stock market only has infinitesimal, maybe a 100 percent increase in GDP [sic], I really don't understand: a, how you can give that advice; b, how you can suggest that an increase in the stock market is a positive indicator of your work in a cost-benefit analysis to the rest of the economy.

Mr. BERNANKE. I was, I was not giving financial advice. I apologize if I gave that impression. I was just saying-

Mr. GARRETT. But she was asking you-

Mr. BERNANKE. -that generally-

Mr. GARRETT. She was asking you the question, what should you be doing to benefit the seniors, what should we say to the seniors. And your comments were-

Mr. BERNANKE. What I was saying was that the economy will get stronger because of good policies and that in turn will cause rates to rise in a sustainable way. If we were to raise rates prematurely, we would kill the recovery and rates would come down and we would have a long-term situation with very low rates.

Mr. GARRETT. But wouldn't you have provided for the certainty in the marketplace so you could have more price transparency? Earlier, you said that some risk-taking in the market is appropriate. That was one of your opening comments. Sure, risk-taking is appropriate, but it is appropriate when there is actual price discovery. When you have a market that is distorted, as it is right now by the Fed's monetary policy, you really don't have true price discovery. And so when you do risk-taking now, it is based upon I not really knowing what the appropriate value is of land prices, equity markets prices, so risk-taking now is worse than risk-taking is when the Fed's actions do not distort the marketplace. If you would say-

Chairman HENSARLING. The time of the gentleman has expired.

THE Q&A BETWEEN CONGRESSWOMAN SHELLEY MOORE CAPITO AND HIM:

MRS. CAPITO: Many of us are in that sandwich generation trying to help our parents, and our parents are doing a pretty good job trying to help themselves, but they're relying on their good planning and investments if they have been lucky enough to invest. And the dividend and interest availabilities to them are crushing our seniors as they see their healthcare costs go up. And some of the policies that you put forward I think, and that the Fed has, has caused concern for those of us who are concerned about seniors who don't have the ability to get another job, that's played out for them. What, what can I tell my seniors back home that is going to give them some optimism that they're going to be able to rely on that good planning that they had to carry them through the senior years?

HIM: Well I would say first that savers have many hats. They may own fixed income instruments like bonds, but they may also own stocks or a house or a business. All those other assets benefit when the economy strengthens and those values have gone up. The stock market is roughly doubled as you know in the past few years.

This was quite specific advice to Mrs. Capito. Besides crawling into Lucifer's den before answering Congressman Garrett, why is this nincompoop telling old people to buy stocks AFTER the stock market has doubled? We might give him the benefit of the doubt that, since Bernanke has banished "actual price discovery" in all markets, and thinks he can do so forever, he will double Mrs. Capito's money over the next few years.

Of course Chairman Bernanke is not the only lifetime bureaucrat to offer carpe diem financial advice.

Following is the good word of David Stockman, author of the masterpiece,  The Great Deformation: The Corruption of Capitalism in America . He was interviewed by Market Watch on April 3, 2013. Eric Rosengren is the President of the Boston Fed.

DAVID STOCKMAN: If you have your money in a 401(k) but you get it out of the stock market or ETFs or bond funds that have duration exposure, and you stay very liquid even if you're making almost no return, thanks to Ben Bernanke, who's crucifying the savers of America on a cross of ZIRP, at least you're safe. In the world ahead, there is such a huge collapse coming in the financial markets, the third one since 2000, it's better to preserve your capital, stay liquid, keep your head down, don't borrow money unless you absolutely have to. That is very discouraging because people would like to earn a return on their savings.

When we have this character Rosengren up in Boston saying, it's a good thing, we are trying to induce people to go into risk assets. Who in the hell is Rosengren to tell old ladies of America they have to buy junk bonds because the Fed tells them to!!!!! If the old ladies feel safer in a CD, they ought to be able to earn something besides dog food money on it. There is going to be a revolt against these arrogant mandarins running the Fed, they will rue the day they arrogated to themselves such massive power. [Italics are my irrational exuberance - FJS]

Knitting. Still Knitting.